In a significant legal decision, the Bombay High Court has affirmed that unilateral arbitrator appointments made before October 23, 2015, are valid if supported by contractual agreement. This ruling addresses the legal landscape prior to amendments in the Arbitration and Conciliation Act, 1996, which introduced measures to ensure arbitrator impartiality. The judgment was delivered by Justice Jitendra Jain in the case of Paisalo Digital Ltd. v. Star Bazaar Pvt Ltd and associated petitions.
Justice Jain’s decision clarified that the unilateral appointment of an arbitrator, when a contract explicitly permits it by naming an arbitrator or giving one party the authority to appoint, is lawful. Such appointments do not lack jurisdiction and are not void ab initio. Nonetheless, if an arbitrator is appointed unilaterally without contractual backing or the other party’s consent, the appointment is void.
This ruling emerged from a series of execution applications filed by Paisalo Digital Limited against numerous judgment debtors, including Star Bazaar Pvt Ltd. Star Bazaar contested the enforcement of arbitration awards on the basis that the sole arbitrators were appointed unilaterally before the 2015 legal amendments.
The 2015 amendment to the Arbitration and Conciliation Act introduced Section 12(5) and the Seventh Schedule, which disqualified certain categories of arbitrators. Subsequent Supreme Court rulings have nullified many unilateral appointments made post-October 23, 2015. Justice Jain was tasked with determining the validity of pre-2015 unilateral appointments and whether courts could refuse to enforce awards issued by such arbitrators.
Following the Supreme Court’s decision in Bhadra International (India) Pvt. Ltd. v. AAI, judgment debtors argued that principles of impartiality and equal treatment were always implied in arbitration law, hence pre-2015 unilateral appointments should also be deemed void. In this case, the Supreme Court emphasized that the 2015 amendments merely articulated these principles explicitly.
The decree holders countered by arguing that the amendments are prospective and establish new statutory disqualifications. They noted that pre-2015, unilateral arbitrator appointments under contractual agreements were upheld by the Supreme Court. They further contended that challenges to such appointments could have been made at the time, and failure to do so precludes later objections during enforcement proceedings.
Justice Jain’s analysis differentiated between appointments explicitly authorized by contract and those made unilaterally without consent or contractual support. The court held that only the latter category of appointments—those lacking both contractual and consensual backing—would be void. The court reiterated that the Supreme Court had previously validated contractually supported unilateral appointments before the 2015 amendments.
The ruling was supported by advocates Devesh Khara, Abhinav Kalia, Devesh Dubey, Shoumya Sahu, Akhilesh Nair, Bismit Nayak, Lakshya Bhatia, and Devendra Kumar Singh, represented by DKL Advocates, on behalf of Paisalo Digital. [Read the full order]
